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The Central Bank of Nigeria (CBN) said it will
introduce new capital requirements for banks in the
second quarter of 2019, a move that threatens to heap
pressure on lenders already weighed down by bad
loans.
Mr Godwin Emefiele answering questions during his
screening by the Senate for Central Bank Governorship
in Abuja on Wednesday
The apex bank told Bloomberg, yesterday, that the new
requirements will be stricter in terms of what funding
qualifies as capital and will also require lenders to
create “capital conservation” and “counter-cyclical”
buffers.
According to CBN, the rule seeks to protect the nation’s
banks “against shocks emanating locally and from
abroad” by increasing the level of regulatory capital and
the quality of the assets.
With the introduction of the new rule, the regulator
seems to be aligning itself with a global accord known
as Basel III, three years after a contraction in Nigeria’s
economy spurred delay of implementation of tougher
capital rules. It also comes after policy makers in 2013
spurned some requirements drawn up by the Basel
Committee on Banking Supervision.
Last year, banks were compelled to migrate to a new
accounting standard known as IFRS 9 to improve
disclosure by forcing lenders to provide for existing
losses as well as those that might occur in the future.
While the average capital-adequacy ratio for the
industry rose to 12.1 percent in June from 10.2 percent
at the end of 2017, some banks said the transition
shaved as much as 200 basis points off their capital
bases.
Nigerian banks are struggling to contend with non-
performing loans equal to 12.5 percent of total credit.
While these have improved from almost 15 percent in
2017, many small- to medium-sized banks are battling
to raise capital, leading to a takeover deal of Diamond
Bank Plc by Access Bank Plc.
CBN said it plans to “apply a leverage ratio to
supplement existing capital ratios” for lenders as well
as “additional loss-absorbency requirements for
domestic-systemically important banks”.
The apex bank further stated: “Country and cross-
border risk guidelines are being developed for the
assessment of risks arising from across border
operations of Nigerian banks.”
Return unfit notes to CBN branches
In another development, the CBN said that members
of the public should return unfit naira notes to banks or
any of its branches for fit notes.
It however warned the nation’s banks against
recirculation of unfit bank notes, saying that it would
impose penalties on any bank that re-circulates unfit
bank notes.
The CBN disclosed this in the Banknotes guidelines
issued yesterday alongside Clean Notes Policy. The
documents were signed by Deputy Governor
Operations, CBN, Folashodun Shonubi and Director
Currency Operations Department Mrs. Priscilla E. Eleje.
Among other things, the guidelines describe fit and
unfit bank notes as well as stipulate Quality Standard
for Nigerian bank notes.
The guidelines stated: “A banknote that is suitable for
continued circulation and is sufficiently clean to allow its
authenticity and value to be readily ascertained.
“A banknote that is unsuitable for further circulation
because of its physical condition, which may be soiled,
dirty, limp, worn out, defaced or has a hole that is
larger than 10 mm. Unfit notes should be returned to
DMBs or a branch of the CBN anywhere in Nigeria for
exchange.”
Explaining the purpose of the guidelines, the CBN
stated: “These guidelines provide the general public
with clear, acceptable criteria and standards for
determining the quality of banknotes in circulation.
“Fitness standards are developed for all denominations
of the banknote. These standards establish the desired
fitness criteria and parameters for the
Banknotes which provide a benchmark and reference
for evaluating banknotes in circulation. The fitness
criteria include: The durability and functionality of
security features on the notes; Banknotes structure and
durability; and Banknote quality i.e. printing and
appearance of the banknotes (soiling/ink wear) etc.”
The guidelines spell out the criteria for re-circulating a
bank note, saying, “A banknote is considered fit for
recirculation if it meets the following criteria:-Genuine,
not counterfeited; Has a defined and acceptable area
dimension; Free from holes, tear, tape or missing part,
folded portion, etc; Has uniform brightness and is not
heavily soiled; Free from excessive ink wear,
particularly in the portrait area; Free from defacing;
Correct denomination, serial number details, etc; The
series that has been approved for redistribution by the
Bank.
If one or more of these criteria are not met, a note can
be classified as unfit and unsuitable for recirculation.”
“To ensure that the banknotes in circulation are clean
and of good quality, DMBs shall ensure that they
process their banknotes using registered processing
companies and classify them into fit and unfit.
“Any counterfeit notes discovered are to be returned to
CBN. Only the banknotes which have been
authenticated (i.e. verified for counterfeit and free from
unfit notes according to CBN standard) will be issued
over the counter by banks or through their cash
dispensing machines. “Unfit banknotes shall not be re-
circulated by DMBs and CPCs. However, a penal
charge of N12,000 per box, or any amount determined
by the Management of the Bank, shall apply for the
deposit of unsorted banknotes. In addition, penalties
as may be determined by the Bank, shall apply for the
re-circulation of unfit banknotes.
“There are machines that accept, count or sort
banknotes automatically into fit, unfit, suspect or
counterfeit. Only cash processing machines which have
been duly configured, and approved by the Bank shall
be used by CPCs.
The following categories of machines must meet
specified standards set by the Bank and be adaptable
to the features of the existing banknotes and the basic
parameters set by the CBN from time to time. The Bank
shall ensure conformity to these standards: Desktop
sorting machines with authentication sensors; Banknote
validators; Medium speed note sorters; High speed
sorters; Automated Teller Machines (ATMs). The
processing equipment would be adapted and confirmed
by CBN to ensure uniformity and consistency with
defined parameters.
“The Bank shall ensure that the Automated Teller
Machines (ATMs) deployed by DMBs and other service
providers are configured to dispense and accept only
genuine banknotes in all denominations.
“The ATMs shall dispense notes that have been duly
checked for authenticity and fitness according to the
Bank’s standard and operators whose ATMs contravene
this provision shall be sanctioned according to section
20 of the CBN Act. Similarly, DMBs and service
providers whose ATMs receive or dispense counterfeits
or materials other than naira banknotes shall be liable
according to section 20(4) of CBN Act 2007.”
On steps to be taken by stakeholders in the currency
management system to ensure that notes in circulation
are of acceptable quality and standard, the CBN said:
“The quality of banknotes must be checked in the
course of withdrawal by all the major cash handlers.
“The DMBs and third party service providers are
advised to adhere strictly to the provisions of the
Guidelines as any violation would attract appropriate
sanctions.
“Fit banknotes should be re-circulated to the public,
while unfit banknotes are to be returned to CBN for
authentication and disposal. All banknote processing
machine parameters must be configured in line with the
quality criteria set by the Bank to ensure consistent
quality output.
Source:
www.vanguardngr.com/2019/01/cbn-to-
introduce-tougher-capital-requirements-for-banks/